A day ahead of Budget 2025, speculation is high on whether the old tax regime will be discontinued, making way for the new tax regime as the sole option—potentially with greater flexibility and lower tax liabilities for taxpayers.
Since the introduction of the new tax regime in the Union Budget 2020, India’s tax landscape has been undergoing a significant transformation. While the old tax regime, with its deductions and exemptions, has been a longstanding feature, the government’s push for the new tax regime has sparked debate about its future.
As Budget 2025 approaches, salaried taxpayers are left wondering: Will the old tax regime finally be phased out?
Old vs. New Tax Regime
The old tax regime, which has been in place for decades, allows taxpayers to claim deductions and exemptions under sections like 80C, 80D, and HRA, among others. These benefits have made it a preferred choice for many, especially those with significant investments in tax-saving instruments or those availing home loan benefits. However, the regime has its complexity.
On the other hand, the new tax regime, introduced in Budget 2020, offers lower tax rates but comes at the cost of foregoing most deductions and exemptions. Initially, the new regime failed to gain widespread acceptance, as taxpayers found the old regime more beneficial due to the savings from deductions. However, the government has been steadily making efforts to make the new regime more attractive. The data shows that over 70% taxpayers have already shifted to the new tax regime.
Also Read: Budget 2025: Key expectations of the common man from FM Nirmala Sitharaman
Budget 2024: A Push for the New Regime
Budget 2024 marked a significant shift in the government’s approach to personal taxation. Finance Minister Nirmala Sitharaman announced several measures to incentivise taxpayers to adopt the new tax regime. These included increasing the basic exemption limit to Rs 3 lakh (from Rs 2.5 lakh), reducing tax slabs, and increasing the standard deduction for salaried class from Rs 50,000 to Rs 75,000 under the new regime. Additionally, the budget introduced a rebate under Section 87A, ensuring that individuals with an income of up to Rs 7.75 lakh would pay no tax under the new regime.
Despite these efforts, the old tax regime was not abolished.
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